Tuesday, February 3, 2009

Another Letter to my Congressional Representative (We Should All Be Doing This)

Chris XXXXXX

Congresswoman XXXXXXX (NY-XX)

Is there anything I can do for your office in terms of data or input? The below outlines the cash flows of HR 1:and - which is the motivation of HR 1 - the following is in the process of playing out:

The above grids are 2% increments, showing output gap will be a negative 8% in 2009. That is, the GDP for 2009 will be 8% less than "full employment" economy. That 8% is roughly 1.1 trillion dollars of GDP which will not occur.

That will result from a combination of a drop in investments both public and private and more importantly a drop in consumption because Americans either lose their employment or they raise their savings instead of consumption, Jam tomorrow versus jam today.

Most economists and market forecasters, right and left, are in accord with the above numbers.

The auto sales numbers for the month of January proves this out as all autos from all manufacturers or types is down 30% to 40% .

If the above $1 trillion is not replaced by public sector investments - popularly called fiscal stimulus - the resulting tragedy above will confirm the conditions which prompted the fear that resulted in savings. Folks will consume then even less and save more. This is the "Fisher Deflation Debt Spiral" That would induce an even deeper depression.

Much could be done to offset the above if we could turn the tide and replace a significant part of the drop in private investment and consumption with public investment. Since public investment is just that - the acquiring of an asset for future return - it is not a spend but rather the expansion of the public sector balance sheet. The fact the Federal Reserve has grown their balance sheet from 700 billion to 2.25 trillion shows that the "money" is available. This would not be a burden on future generations as the offsetting asset would have social utility and value.

The above cash flow of HR 1 shows that the actual spend for 2009 in terms of any economic consideration is about $29 billion - perhaps a bit more for those monies for direct transfer payments like food stamps and medicaid.

This incredible small size will assure the above output gap occurring.

The next year's $120 billion will not really do much as by that time the environment will motivate people to save even more and the private sector to invest even more.

Simple logic will allow you to conclude that all transfer payments and tax fixes, unless for goods certain to be spent like food stamps or health care support, will just be used to facilitate savings. Therefore only a fraction of the amount over $29 billion will do anything, and certainly nothing is to be found to offset the $1 trillion drop in consumption.
As written HR 1 is almost certain to be the legislative product which will go down in history as the single most disastrous piece of legislation ever written by Congress. Given the above, and unless you can find some mistake in what I say above, your own logic will lead you to agree.

The 8% output gap is a depression.

It will result in well over 10% unemployment and with momentum in unemployment such that it will be very difficult for it not to go to 15% or higher.

This would invariably lead to massive tension in our urban areas.
It would most certainly lead to rage with the political leadership in allowing this to occur.

While we suffer, almost all our offshore friends and associates will be suffering even more so. The whole "multi-polar" world with countries economies going at different paces and cycles has shown to be a chimera. Every OECD and all large developing countries are now moving in lockstep with the developments in the USA. If our output gap and depression of 8% occurs, it will be double or triple that in every other country in the world.

Extreme international tensions will develop resulting in protectionism and then likely conflict.

I started writing my Congressional Representative's office, my Congresswoman XXXXX, in September of 2008. Unfortunately everything I have portrayed and warned your office about has resulted pretty well as I outlined. My credibility with your office and with Congresswoman XXXXX should be large.

I am begging Congress to reverse this approach shown in HR 1 and write in a significant public investment to at least partially offset the already occurring drop of private sector investment and consumption.

If this does not occur it is very unlikely either of us will have a job as my employer will be likely crushed and Congresswoman XXXXX returned to the private sector.
I remain to do all I can for Congresswoman XXXXX.

I hope she is reading these emails or briefed - again I point out (again I wish it were not so) - my almost perfect track record as we have gone through this crisis.

There is yet to be a sign that Congress has secured dedicated and knowledgeable advice during this most serious national crisis. When we were at the low points in Iraq, did not Congress seek out and listen carefully to those who have made a career in war craft, the Petraeus types of the Army? Did Congress ever feel, no matter how fierce the appropriate criticism, that they could devise national war policy themselves?

Why is Congress drafting and then passing HR 1 as a normal political budgetary process? It is not. HR 1 is supposedly the answer to a severe national emergency. It's drafting should require careful deliberation of our most highly trained experts which Congress should review and offer critique, but should not author. It is clear by the HR 1 no experts were really consulted. CBO staffers are not experts. Congress who have written many budgets are not experts in this particular emergency.

I am afraid that if we carry on as we are the public rage that Congress is deflecting to my industry, along with the press, will exhaust itself with Wall St after it realizes what small fry toll keepers we are, and then swing appropriately to the true cause of their misfortune.

Please avail yourself of my help. You have no reason to not consider my input most carefully, given the complete success I have had in predicting our current status, starting from my first email to Congresswoman XXXXX in September 2008. If called upon I will do all I can to help. I consider this country under the same degree of risk as in a world war.

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About Me

Many years of experience in being a market maker, a trader, a salesguy or portfolio manager in almost all asset classes known. Have had a high teens average career return and yet can say that I have lost more money in more asset classes than anyone I know.
My biggest curse is that not even wishing to become involved: "I see dead people.", as the kid said in the movie. I can smell a trade in the drawer or financial fraud or PL blowup miles away. Should have been with the FBI if wanted to max social utility.
Autodidact in all things math, formal education in history.